Robert Samuelson Poor Mouths the Super Rich

Robert Samuelson writes today about the "backlash against the rich." It's actually a fairly evenhanded column, but at the end he just can't help himself. The super rich just have to be defended:

The trouble is that the wealthy don’t fit the stereotypes: They aren’t all pampered CEOs, hotshot investment bankers, pop stars and athletes. Many own small and medium-sized companies. Half the wealth of the richest 1 percent consists of stakes in these firms. That’s double their holdings of stocks, bonds and mutual funds, according to figures compiled by economist Edward Wolff of New York University. Reid would pay for Obama’s jobs plan by taxing the people who are supposed to create jobs. Does that make sense?

"Many own small and medium-sized companies." Well, sure, if you're talking about really successful doctors and lawyers, who make up about a quarter of the top one percent. Most of the rest are corporate executives and financial professionals.

"Half the wealth of the richest 1 percent consists of stakes in these firms." Hmmm. I clicked the link to the Edward Wolff paper that Samuelson cites, and Table 6 shows that top earners hold 25% of their wealth in stocks and other securities, and 52% in "unincorporated business equity and other real estate." This is indeed double, but what does that category mean? According to a footnote in Table 5, it's "Net equity in unincorporated farm and nonfarm businesses and closely-held corporations."

Does this mean that 52% of the wealth of top earners consists of stakes in "small and medium sized companies"? I suppose it might, but that's not what Wolff's paper says. It just says that 52% of their wealth consists of stakes in non-public businesses. Those could be Koch-sized megacorporations, private equity funds, legal and medical partnerships, real estate trusts, or a hundred other things. Nothing about them has to be small, and they probably aren't. We're talking about people who earn upwards of a million dollars a year, after all. You don't get that from taking a minority stake in your brother-in-law's auto shop.

More than two-thirds of both the top 1% and the top 0.1% consists of corporate executives, financial professionals, doctors, and lawyers. Small businesses of the traditional variety just aren't a big part of this, and it's time to stop pretending otherwise.

Live Reporting from Occupy Wall Street

I don't know how many of you have seen this already, but I just scrolled through Josh Harkinson's reporting from the Occupy Wall Street site, and it really gives you a great sense of what things look like there. His own reporting is there, updated continuously, plus loads of links to photos and videos and various related rants around the internet. It's all here, along with links to other MoJo reporting from downtown Manhattan. If you'd like to get a better feel for what's going on and how it's unfolding, take a look. And come back periodically to see the latest updates.

And for the rest of you, who just want the whole thing summarized in one quick chart, here you go:

Obama Defends the Awlaki Assassination

The Obama administration remains unwilling to release the legal memo that gives them the authority to assassinate U.S. citizens abroad, but apparently they are willing to selectively leak it to the press. As a result, it was "described" to Charlie Savage of the New York Times, who passes along the description to us.

It's hard to know what to do with this, since the administration is obviously eager to leak the parts that it thinks are strong but withhold the parts that might not make it look so good. Still, the overall tenor of the memo is quite clear: it's all about Anwar al-Awlaki being an enemy combatant, allied with al-Qaeda, in a declared war against the United States:

Based on those premises, the Justice Department concluded that Mr. Awlaki was covered by the authorization to use military force against Al Qaeda that Congress enacted shortly after the terrorist attacks of Sept. 11, 2001 — meaning that he was a lawful target in the armed conflict unless some other legal prohibition trumped that authority.

It then considered possible obstacles and rejected each in turn. Among them was an executive order that bans assassinations. That order, the lawyers found, blocked unlawful killings of political leaders outside of war, but not the killing of a lawful target in an armed conflict.

A federal statute that prohibits Americans from murdering other Americans abroad, the lawyers wrote, did not apply either, because it is not “murder” to kill a wartime enemy in compliance with the laws of war.

....Then there was the Bill of Rights: the Fourth Amendment’s guarantee that a “person” cannot be seized by the government unreasonably, and the Fifth Amendment’s guarantee that the government may not deprive a person of life “without due process of law.” The memo concluded that what was reasonable, and the process that was due, was different for Mr. Awlaki than for an ordinary criminal.

As a non-lawyer, I can't say too much about this. But I'll say this much: the war against al-Qaeda simply isn't your grandfather's war, and we really need to face up to this. Of course the military has the right to kill an enemy combatant in a war zone, and in a conventional war this is both obvious and generally easy to adjudicate. But in the war against al-Qaeda? A war with no set geography, no boundaries in time (the AUMF is more than ten years old now), no clear enemy, and no way of deciding if and when it's ever over?

The old rules just don't apply to such a war, and Congress needs to actively decide what rules should apply. This isn't a question of whether you, personally, trust President Barack Obama or President Mitt Romney or any other president. It's a question of whether, in an open-ended conflict authorized in the vaguest possible terms over a decade ago, we should allow any president to unilaterally decide on a case-by-case basis whether an American citizen is an enemy soldier who can be targeted for killing.

Maybe he can. But I'd sure feel better about it if Congress set some rules for this and the court system had some oversight over the president's decisions. Hell, even requests to eavesdrop on U.S. citizens at least have to go through the rubber-stamp FISA court, which has to give its OK based on statutory law. In an open-ended global conflict against a steadily redefined enemy, what possible justification can there be for requiring less of targeted killings outside of obvious battle zones?

The Great Investment Drought

David Leonhardt writes today that if we expect the economy to eventually rebound the way it did after the Great Depression of the 1930s, we're sorely mistaken. There's obviously something to this: after World War II, which finally ended the Depression for good, the United States had (a) a huge pool of savings that people were eager to put to use, and (b) a strong potential export economy since the rest of the world had been blown to smithereens. We didn't need to import goods from Japan or China, and we didn't need to import oil from OPEC. We had all we needed right here at home.

Today, even after we crawl out of our current malaise, things will be just the opposite. Our debt overhang will probably be a drag on growth for a long time to come, our trade balance is persistently negative, and the price of oil acts as a significant constraint on economic growth. So some pessimism is warranted. But I'm not so sure about this:

Three giant industries — finance, health care and housing — now include large amounts of unproductive capacity. Housing may have shrunk, but it is still a bigger, more subsidized sector in this country than in many others. Health care is far larger, with the United States spending at least 50 percent more per person on medical care than any other country, without getting vastly better results....The contrast suggests that a significant portion of medical spending is wasted, be it on approaches that do not make people healthier or on insurance-company bureaucracy.

In finance, trading volumes have boomed in recent decades, yet it is unclear how much all the activity has lifted living standards....Wall Street has captured a growing share of the world’s economic pie — thereby increasing inequality — without doing much to expand the pie. It may even have shrunk the pie, given that a new International Monetary Fund analysis found that higher inequality leads to slower economic growth.

The common question with these industries is whether they are using resources that could do more economic good elsewhere. “The health care problem is very similar to the finance problem,” says Lawrence F. Katz, a Harvard economist, “in that incredibly talented people are wasting their talent on something that is essentially a zero-sum game.”

I'd treat these three things separately. Housing is a purely short-term issue. There's really no reason to think that it will act as a permanent drag on the economy. Sometime in the next few years it will return to its trend rate of growth and that will be that.

Healthcare is different. There's unquestionably some waste, both in human and economic terms, and this really is a misallocation of resources. At the same time, the big reason we pay more for healthcare than other countries is simply because we pay doctors more, we pay hospitals more, we pay insurance companies more, and we pay pharmaceutical companies more. I happen to think this is a bad thing, but it's not as if the money falls through a sieve and disappears. It all stays in the economy and gets spent one way or another.

And then there's high finance, which as near as I can tell, really has turned into a huge leech on the economy. If I had to guess, I'd say that upwards of a quarter of all financial activity today is actively damaging to the economy, and reforms like Dodd-Frank will have only the slightest impact on that.

So what's my beef with Leonhardt? Just that I think he's overstating things a little bit? No. My beef is with the bolded sentence above. The problem is that there's very little evidence that housing and healthcare and finance are actively sucking away investment dollars that could be better used elsewhere. Rather, the problem seems to be a drought of good investment opportunities, which leaves lots of money idle and looking for something else to do. The result is the same — lots of money going into unproductive sectors — but the arrow of causality is different. If there were lots of great, high-yield investment opportunities in the real world of consumer goods and services, money would flow there instead of blowing up housing bubbles and enriching a bunch of testosterone-fueled Wall Street traders.

A couple of days ago I argued that our capacity for innovation might be healthier than it's often given credit for. But if there's a strong counterargument, I think this is at the core of it. If we really are innovating at the same pace as in the past, why are the world's investment dollars flowing so heavily into useless crap instead? It might be, as I sort of argued on Friday, that present-day innovations are as great as they've ever been, but simply don't cost very much and don't employ very many people. Maybe. But in any case, the great investment drought of the past decade is, I think, at the core of everything. One way or another, we need to figure out why it happened and why it seems to be persisting.

Ezra Klein has a really, really good piece in the Post today that looks back at the Obama administration's response to the Great Recession and explains why it wasn't enough. It's so good that I almost hate to excerpt anything, but you guys are spoiled and might not click the link just because I tell you it's well worth 15 minutes of your time to do it. So here's an excerpt that explains why Team Obama did so little about mortgage debt even though it was clear from the beginning that debt was a key difference between this recession and every other postwar recession:

On first blush, there are few groups more sympathetic than underwater homeowners or foreclosed families. They remain so until about two seconds after their neighbors are asked to pay their mortgages. Recall that Rick Santelli’s famous CNBC rant wasn’t about big government or high taxes or creeping socialism. It was about a modest program the White House was proposing to help certain homeowners restructure their mortgages. It had Santelli screaming bloody murder.

“This is America!” he shouted from the trading floor at the Chicago Board of Trade. “How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills? Raise their hand.” The traders around him began booing loudly. “President Obama, are you listening?”

Thus was the Tea Party born. And it's an important point: one way or another, taxpayers are always going to be on the hook for any kind of debt relief. They can be on the hook directly, by shoveling dollars to homeowners so they can pay down their mortgages, or they can be on the hook indirectly by bailing out all the banks that would fail if courts were allowed to unilaterally slash the principal on underwater mortgages via cramdown. Taxpayers aren't going to be happy about this either way, and like it or not, that constrains the responses available to politicians.

Economist Carmen Reinhardt gives Obama a lot of credit for what he did. "The initial policy of monetary and fiscal stimulus really made a huge difference," she says. "I would tattoo that on my forehead. The output decline we had was peanuts compared to the output decline we would otherwise have had in a crisis like this. That isn't fully appreciated." The combination of the stimulus bill, the auto bailout, and the bank rescues really did make a big difference.

But it wasn't enough. Partly that was because of political timidity. Partly it was because of genuine disagreements over which policies were likely to work best. And partly it was because we didn't know how truly bad things were in early 2009. As Ezra reminds us:

To understand how the administration got it so wrong, we need to look at the data it was looking at. The Bureau of Economic Analysis, the agency charged with measuring the size and growth of the U.S. economy, initially projected that the economy shrank at an annual rate of 3.8 percent in the last quarter of 2008. Months later, the bureau almost doubled that estimate, saying the number was 6.2 percent. Then it was revised to 6.3 percent. But it wasn’t until this year that the actual number was revealed: 8.9 percent. That makes it one of the worst quarters in American history. Bernstein and Romer knew in 2008 that the economy had sustained a tough blow; they didn’t know that it had been run over by a truck.

Anyway, click the link and read the whole thing. Really. This is one of the best roundups I've read of just what the Obama administration did right, what they did wrong, and whether they could have done better.

And if you're looking for a bottom line, mine is this: Despite everything, Team Obama actually did pretty well. Maybe 70-80% as well as anyone could have done. Housing was their single biggest area of failure, but even there, taxpayer and congressional resistance to bailing out "reckless" borrowers constrained them more than critics usually admit. Our failure to adequately address the Great Recession wasn't really rooted in the Obama administration, it was rooted in the fact that virtually no one, faced with an economic crisis, ever has the guts to truly unleash the proper amount of firepower. It's a very human problem, but for now anyway, humans are all we have. So a human response was what we got.

Friday Cat Blogging - 7 October 2011

On Tuesday, John Cole foolishly baited me with a video of his cat, Tunch, purring for the camera. "Can Inkblot make noise like that?" he asked from the safety of his home 3,000 miles away in West Virginia.

Skeevy oppo researchers make insinuations like this all the time, since they know America won't elect a cat president who doesn't have a presidential purr. So today is movie day, proof positive that Inkblot has just the right timbre and resonance we demand from our presidents in this media age.

The bad news, of course, is that this means His Mightiness1 has now pushed Domino off the blog for two weeks running. But have no worries. She's plotting her revenge. She'll be back next week.

1Back in 1789, this was one of the original suggestions for how we should address the president. Inkblot is considering reviving this if he's elected.

From Karl Smith, responding to outgoing ECB President Jean-Claude Trichet's continuing insistence on choking off the economy with tight money:

Obviously the European Central Bank (ECB) has nearly unlimited power to inflict suffering on the people of the Eurozone. And, from the looks of it they it intend to use it.

Read the rest for some wonkery to fill in the details. But really, the two sentences above pretty much tell the story.

Paul Krugman writes today about the Occupy Wall Street protesters:

Now, it’s true that some of the protesters are oddly dressed or have silly-sounding slogans, which is inevitable given the open character of the events. But so what? I, at least, am a lot more offended by the sight of exquisitely tailored plutocrats, who owe their continued wealth to government guarantees, whining that President Obama has said mean things about them than I am by the sight of ragtag young people denouncing consumerism.

This is a really important point, and it's especially important for sober, mainstream, analytical liberal folks. Like me. So consider this post a warning to myself.

If you go to any tea party event, you'll hear some crackpot stuff and see some people dressed up in crackpot costumes (tricorner hats etc.). By "crackpot," I mean stuff so outré that even movement conservatives know it's crazy and want nothing to do with it. Of course, it gets reported in the media occasionally, and when it does, snarky liberals have a field day with it.

But does this scare off anyone on the right? It does not. They ignore it, or dismiss it, or try to explain it away, and then continue praising the overall movement. The fact that liberals have found some hook to deliver a blast of well-timed mockery just doesn't faze them. They know whose side they're on.

So Krugman is right: liberals need to take the same attitude. Are there some crackpots at the Occupy Wall Street protests who will be gleefully quoted by Fox News? Sure. Are some of the organizers anarchists or socialists or whatnot? Sure. Is it sometimes hard to discern a real set of grievances from the protesters? Sure.

But so what. Ignore it. Dismiss it. Explain it away. Do whatever strikes your fancy. But don't let any of this scare you off. We can put up with a bit of mockery if we keep the chart above firmly in front of our faces. Just keep reminding yourself: a mere three years after the financial industry nearly destroyed the planet, Wall Street is bigger and more profitable than ever while a tenth of the rest of us remain mired in unemployment. Even after nearly destroying the planet, virtually nothing has changed. That's the outrage, not a few folks with funny costumes or wacky slogans. Always keep in mind whose side you're on.

As you've probably heard by now, employment was up by 103,000 last month. Since the economy needs to generate 100-150,000 jobs each month just to keep up with population growth, this means that in real terms we're either treading water or actually moving backward. In any case, it's a lousy report.

But rather than run my usual chart showing this, here's a peek at the details from the BLS report instead. As you can see, our problem is that the private sector is producing more jobs — though slowly — but the public sector is shrinking. That's been the story for a long time now, though you might not know it given the ceaseless clamor from the right about big government, overbearing regulations, and out-of-control spending. The evening news isn't likely to point this out, but the truth is that government employment is down across the board, and that's a big reason our economy has remained so sluggish. Not only are conservatives in Congress grimly determined to prevent any substantive action to improve the economy, but conservatives around the country are actively making things worse. And we wonder why people have such a dim view of our elected officials.

Harry Reid Goes Sub-Nuclear

Harry Reid, in a fit of spinefulness, killed off a Senate rule last night. There are really only two things you need to know about this:

  1. The rule itself was an obscure and trivial delaying tactic that, until now, neither party had used for decades. It does not directly affect either cloture or the filibuster, so stop drooling.
  2. The rule was eliminated by a majority vote that overturned a ruling of the parliamentarian.

#1 doesn't matter. (Though details are here if you're a masochist.) #2 might be a big deal. For starters, if you can change the Senate rules by simply overruling the parliamentarian on a majority vote, you can change pretty much any Senate rule by a majority vote. For seconders, Harry Reid actually got the entire Democratic caucus to go along with this. That's.....sort of amazing.

No one knows how this is going to play out in the future. One possibility is that it's a nothingburger. Overturning an obscure rule doesn't set much of a precedent, and likewise, uniting the Democratic caucus over something so arcane doesn't mean much either. Mitch McConnell and his friends will squawk, and then life will go back to normal. What's more, the proposition that a parliamentarian's ruling can be overturned on a majority vote isn't really anything new. It hasn't been used much, but it's a precedent that's been in place for decades.

Still, there's at least the possibility that it's very much a somethingburger. It might be something Republicans take advantage of if they win a Senate majority in the next election. In the nearer future, it might mean Democrats are finally figuring out that if they don't hang together, they will assuredly all hang separately. If I had to guess, I'd vote that this is a nothingburger, but it's worth keeping an eye on.

(It will, of course, also inspire Fox/Drudge/Tea Party shrieks about totalitarianism and Democratic thuggery, but that can be safely ignored. The real action will all be behind the scenes.)